In keeping with the slew of high-profile announcements made this
week and with the expected launch of Apple's (
AAPL
) next iPhone hogging headlines,
Samsung
(
SSNLF
) decided to take part in the media frenzy with an important
announcement of its own. The South-Korean consumer electronics
giant announced Thursday that its flagship Galaxy S III phone has
sold more than 20 million units in a little over three months since
launch. In comparison, the predecessor, Galaxy S II, had taken more
than three months to sell as many. The incredible success that
Samsung has had with the new flagship Galaxy S points not only to
the rapid pace of growth in smartphone sales worldwide, but also
the company's growing presence in high-end smartphone market - a
segment that has long been Apple's hegemony.
See our complete analysis for Apple
|
Samsung here
Samsung makes a high-end statement
The past year has seen Samsung gain a lot of smartphone market
share. Last quarter saw Samsung take a decisive lead in the
smartphone market, selling almost twice as many smartphones as
Apple. As a result, its market share doubled to more than 36%
in Q2 2011 from about 18% during the same period last year. We
believe that the big market share gains that Samsung has achieved
is, for the most part, a result of the number of low-end
Android smartphones it has flooded the markets with, both in
emerging as well as developed markets.
However, Samsung's superiority in low-end smartphone market was
long foreseen considering the company's scale and the
market-flooding strategy it has used right from the
start. What is, however, relatively new is that it has managed
to leverage the huge following garnered with the wide array of
Android choices to start challenging Apple in the high-end of the
smartphone market.
The 20 million Galaxy S IIIs sold in just over a quarter after
launch may be about half of what Apple managed in the quarter when
the 4S was launched, but it should be kept in mind that a portion
of Apple's sales would have included the older versions of the
iPhone, whose prices were brought down subsequent to the 4S launch,
as well. Also, the Galaxy S series is only in the
third-generation compared to the iPhone 4S which is a
fifth-generation product, meaning that Samsung had a comparatively
smaller base of Galaxy owners to upgrade than Apple had with the
4S.
All factors considered, Samsung may still have some catching up
to do in high-end smartphone market considering that the iPhone 5,
which is expected to arrive next week, is gearing up to be Apple's
biggest upgrade cycle ever. However, with Samsung closing the gap
faster than many anticipated at the start of the year, should
Apple's investors be worried?
iPhone 5 crucial for Apple
Not really, considering that Samsung's big market share gains
have largely came at the expense of others such as Nokia and RIM as
opposed to Apple, which lost less than 1% market share last
quarter. Also, the iPhone 4S was more than two quarters old when
the Galaxy S III was launched. With rumors about the iPhone 5
circulating in the media, we believe that many customers may have
postponed purchasing the new iPhone in anticipation of the iPhone
5. This could be easily gleaned from Apple's last quarter
financials, which showed that the company's margins came under
pressure from a drop in the iPhone's average selling prices (ASPs).
What this means is that the iPhone mix tilted toward the low-end,
probably because many high-end smartphone buyers deferred their
iPhone purchases until the launch of the iPhone 5 while lower-end
purchases remained steady.
The pent-up demand might mean a phenomenal holiday quarter for
Apple, like last year, but it also puts its stock under the risk of
the iPhone 5 not meeting customer expectations. Meanwhile, the
company's last quarter margin compression could continue into this
quarter as well, as expectations of an imminent iPhone 5 release
strengthen.
However, the fact that emerging markets are still a largely
unexplored market for Apple keeps the upside potential intact.
China, for example, holds a lot of promise for Apple
considering the huge 2G subscriber base that the carriers there are
trying to transition to 3G (3G penetration is currently only about
18% in China and growing at a good rate). A deal with China
Mobile, the largest carrier in the world by subscriber base, is
looking increasingly likely following Qualcomm's recent
announcement and Apple's similar deals with the other two carriers.
This deal would be very important for Apple as it would instantly
double its addressable market for the iPhone in China and act as
the next big boost to its stock. This is especially true because
that the iPhone accounts for more than 55% of the company's value,
according to our estimates. (see China Mobile In Talks To
Offer The iPhone; Can Alone Take Apple Past $800)
There is also a distinct possibility that Apple could leverage
its latest patent win over Samsung to ban the sales of some of
Samsung's best-selling, high-end models such as the Galaxy S III in
the U.S. How much of an impact that will have on both companies
will depend on Samsung's ability to bounce back with
re-engineered/re-designed products as well as Apple's ability to
press for a ban in other geographies.
Submit a Post at Trefis Powered by Data and Interactive
Charts |
Understand What
Drives a Stock at Trefis